AG Growth Income Fund
TSX : AFN.UN

AG Growth Income Fund

November 08, 2005 16:05 ET

Ag Growth Income Fund Reports Results for the Three and Nine Months Ended September 30, 2005 and Announces Special Distribution of $0.12 per unit

ROSENORT, MANITOBA--(CCNMatthews - Nov. 8, 2005) - Ag Growth Income Fund (TSX:AFN.UN) today reported its financial results for the three and nine-month periods ended September 30, 2005. In addition, the Fund announced today that the Board of Trustees has approved a special distribution of $0.12 per unit, payable December 30, 2005 to unitholders of record at November 30, 2005. The special distribution recognizes that distributable cash generated through the third quarter exceeds year to date distributions. As the Fund's Declaration of Trust requires that it distribute all taxable income earned in its fiscal year, the Fund's Board of Trustees will meet again in December to determine if an additional special distribution should be paid with respect to fiscal 2005.

Results for the three-months ended September 30, 2005

The Fund reported revenue of $26.8 million and earnings before interest, taxes, depreciation, and amortization of $8.1 million. During the quarter the Fund generated distributable cash of $0.6859 per unit and declared distributions of $0.3800 per unit.

Results for the nine-months ended September 30, 2005

The Fund reported revenue of $67.1 million and earnings before interest, taxes, depreciation, and amortization of $20.1 million. For the nine-months ended September 30, 2005 the Fund generated distributable cash of $1.7312 per unit and declared distributions of $1.0483 per unit.

Overview of Results

Sales and EBITDA for both the three and nine-month periods ended September 30, 2005 exceeded the previous highs recorded in the same periods in 2004. A strong performance in key U.S. markets, solid gross margins, and the acquisition of the Edwards Group all contributed to the favourable sales and EBITDA. The strong financial performance has also resulted in a lower than anticipated distribution payout ratio for the three and nine-month periods. "We are very pleased with our September 30, 2005 results," said Rob Stenson, President and CEO of Ag Growth Income Fund, "Once again our geographic diversification and the strength of our distribution network served us well, as we were able to achieve these results despite unfavourable conditions in certain areas of the U.S, Western Canada, and Australia. In addition, the Edwards Group had another successful quarter and made a significant contribution to our results. We are looking forward to the fourth quarter and the conclusion of a very successful 2005."

Uncertainty Regarding Taxation of Income Trusts

Uncertainty created by the federal government's review process has caused volatility in our unit price. We regret this volatility but until that uncertainty is lifted it remains unclear what their intentions are. Speculation is wide ranging and includes a concern that a new tax on income trusts may be imposed. The federal government has called for input by December 31, 2005. We believe our unitholders should express their views on this important issue and whether they support a tax on business trusts to their local Member of Parliament and to the Minister of Finance, Ralph Goodale. To find your Member of Parliament's contact information by postal code go to http://www.parl.gc.ca.

Distributions

The Fund's policy is to make monthly distributions to holders of both Fund units and Class B Exchangeable limited partnership units. Furthermore, in accordance with the terms of the Fund's prospectus, holders of Class C Subordinated Exchangeable limited partnership units receive distributions quarterly provided the relevant terms of subordination have been met, which they have since the inception of the Fund.

The Fund's Declaration of Trust requires that it distribute all taxable income earned in its fiscal period ending December 31. It may be necessary for the Fund to estimate a special year-end distribution to achieve this requirement. The initial distribution, if any, will be made in December and paid to unitholders of record on December 30. Upon completion of the annual financial statements, a final determination of any additional distribution will be made, and the additional amount, if any, will be paid to unitholders of record at that time. If the Fund is required to make an additional distribution, the unitholders of record on December 30 will be required to include the amount of the additional distribution in their taxable income. If they are not unitholders at the record date of the additional payment they will be required to include the amount in their taxable income even though they do not receive the distribution. Those unitholders, however, can reduce their capital gain on the sale by the amount of the additional distribution.

The Fund's Board of Trustees reviews financial performance and other factors when assessing the Fund's distribution levels. An adjustment to distribution levels will be made at such time as the Board determines the adjustment is sustainable and in the long-term best interest of the Fund and its unitholders.

Company Profile

Ag Growth is a leading manufacturer of portable grain handling equipment including augers, belt conveyors and numerous other grain handling accessories. Ag Growth has a leading North American sales, marketing and distribution system within the short-line farm equipment industry, including approximately 1,400 dealers and distributors, in 48 states and nine provinces.

Non-GAAP measures

References to "EBITDA" are to earnings before interest, income taxes, depreciation, and amortization. Management believes that, in addition to net income or loss, EBITDA is a useful supplemental measure in evaluating its performance. Specifically, management believes that EBITDA is the appropriate measure from which to make adjustments to determine the Fund's distributable cash. EBITDA is not a financial measure recognized by Canadian generally accepted accounting principles ("GAAP") and does not have a standardized meaning prescribed by GAAP. Management cautions investors that EBITDA should not replace net income or loss as an indicator of performance, or cash flows from operating, investing, and financing activities as a measure of the Fund's liquidity and cash flows. The Fund's method of calculating EBITDA may differ from the methods used by other issuers.

Forward-Looking Statements

The statements contained in this news release that are forward-looking are based on current expectations, and are subject to a number of uncertainties and risks, and actual results may differ materially. These uncertainties and risks include, but are not limited to, the dependence of Ag Growth Income Fund on the operations and assets currently owned by Ag Growth Industries Limited Partnership, the degree to which Ag Growth Industries Limited Partnership and its affiliates are leveraged, the fact that cash distributions are not guaranteed and will fluctuate with Ag Growth Industries Limited Partnership's financial performance, dilution, restrictions on potential future growth, the risk of unitholder liability, competitive pressures (including price competition), changes in market activity, the cyclicality of the farm equipment industry, seasonality of the business, poor weather conditions, international operations and foreign currency fluctuations, legal proceedings, commodity price and raw material exposure, dependence on key personnel, and environmental, health and safety and other regulatory requirements. Further information about these and other risks and uncertainties can be found in the disclosure documents filed by Ag Growth Income Fund with the securities regulatory authorities, available at www.sedar.com.

AG GROWTH INCOME FUND

MANAGEMENT'S DISCUSSION AND ANALYSIS

NOVEMBER 7, 2005

This Management's Discussion and Analysis should be read in conjunction with the unaudited interim consolidated financial statements and accompanying notes ("Interim Financial Statements") of Ag Growth Income Fund for the three and nine-month periods ended September 30, 2005, and the audited consolidated financial statements and accompanying notes of Ag Growth Income Fund as at and for the 283-day period ended December 31, 2004 (including Ag Growth's results of operations for the 228-day period ended December 31, 2004). Results are reported in Canadian dollars unless otherwise stated and have been prepared in accordance with Canadian generally accepted accounting principles.

OVERVIEW OF THE FUND

Ag Growth Income Fund (the "Fund") is an unincorporated, open-ended, limited purpose trust established under the laws of the Province of Ontario by a Declaration of Trust made as at March 24, 2004. On May 5, 2004, the Fund filed a final prospectus for the sale of 6,904,000 units at $10 per unit. In conjunction with the IPO, the Fund acquired indirectly all of the securities and assets of Ag Growth Industries Inc. ("Ag Growth"), which conducts business in the grain handling, storage, and conditioning market. As consideration for the acquisition, the owners of Ag Growth received, in addition to cash, 800,000 Class B Exchangeable units and 1,926,000 Class C Exchangeable Subordinated units of AGX Holdings Limited Partnership ("AGHLP"), a wholly owned subsidiary of the Fund. The units of the Fund and the Class B and Class C units of AGHLP participate pro rata in the distributions of net earnings. Subsequent to the date of the offering, a total of 630,022 Class B units of AGHLP have been exchanged for 630,022 units of the Fund. Effective April 8, 2005, the Fund acquired substantially all of the assets of The Edwards Group of Companies, a leading manufacturer of agricultural aeration equipment. In conjunction with the acquisition of the Edwards Group, the Fund issued an additional 1,595,000 units via a private placement. Subsequent to this unit issuance, the prior owners of Ag Growth hold a 19% interest in the Fund and hold 2,095,978 Special Voting Units.



As at November 7, 2005, the following units of the Fund were issued
and outstanding:

Trust units 9,129,022
Class B Exchangeable units 169,978
Class C Exchangeable Subordinated units 1,926,000
------------
Total units that participate pro rata in distribution 11,225,000
------------

Special Voting Units (1) 2,095,978
------------
------------

(1) The Fund has issued a Special Voting Unit for each Class B and
Class C unit outstanding. The Special Voting Units are not
entitled to any interest or share in the Fund, or in any
distribution from the Fund, but are entitled to vote on matters
related to the Fund.


Ag Growth Income Fund units trade on the Toronto Stock Exchange under the symbol AFN.UN.

BASIS OF MANAGEMENT'S DISCUSSION AND ANALYSIS

The Fund was inactive until its acquisition of Ag Growth on May 18, 2004. To provide meaningful information to the reader, comparative results for the nine-month period ended September 30, 2004 include Ag Growth's results of operations for the 137-day period ended May 17, 2004. Management's Discussion and Analysis will refer to the Combined Operating Results of the Fund for the nine-month period ended September 30, 2004, which is comprised of the operations of the Fund for the 136-day period ended September 30, 2004, and Ag Growth's results of operations for the 137-day period ended May 17, 2004 (the "combined operating results"). Readers are cautioned that the combined operating results presented are not the results of the Fund for the nine-month period ended September 30, 2004 and have been presented only to provide the reader with additional information to enhance comparability to operating results of the Fund for the nine-month period ended September 30, 2005.

Comparative results - Nine-months ended September 30, 2004

The table below reconciles the operating results reported by the Fund to the combined operating results for the nine-month period ended September 30, 2004. Other than transactions related to the initial public offering on May 18, 2004, and the gain on sale of Ag Growth's outstanding foreign exchange contracts in January 2004, there are no unusual items in either Ag Growth's or the Fund's results for the nine-month period ended September 30, 2004. Certain comparative figures have been reclassified to conform with the current period's presentation.



Combined
operating
Ag Growth The Fund (1) results
(Pre Fund)
Nine-month
January 1 - Inception - period
May 17, September 30, September 30,
2004 2004 2004

Sales $19,746,893 $29,636,113 $49,383,006
Cost of sales 11,017,758 15,055,513 26,073,271
------------ ------------ ------------
Gross margin 8,729,135 14,580,600 23,309,735
Operating expenses 4,402,052 5,920,779 10,322,831
------------ ------------ ------------
EBITDA before gain
on sale and IPO
expenses 4,327,083 8,659,821 12,986,904
Gain on sale (2) (4,553,611) 0 (4,553,611)
IPO expenses 1,401,750 0 1,401,750
------------ ------------ ------------
EBITDA (3) 7,478,944 8,659,821 16,138,765
Amortization (3) 287,486 1,205,123 1,492,609
Interest expense 1,082,401 437,700 1,520,101
------------ ------------ ------------
Earnings before tax 6,109,057 7,016,998 13,126,055
Tax expense 2,562,000 92,500 2,654,500
------------ ------------ ------------
Net earnings $ 3,547,057 $ 6,924,498 $10,471,555
------------ ------------ ------------
------------ ------------ ------------

(1) The Fund was inactive until its acquisition of Ag Growth on May
18, 2004. Included in the Fund's results of operations are the
results of Ag Growth's operations for only the 136-day period
from the date of acquisition, May 18, 2004, to September 30,
2004. Also, certain figures have been reclassified to conform
with the current period's presentation.

(2) In January 2004 Ag Growth realized a gain on the sale of its
outstanding forward foreign exchange contracts. Due to the
significance of the gain it has been segregated from operating
expenses.

(3) See discussion of non-GAAP measures.



The Edwards Group Acquisition

Effective April 8, 2005, the Fund acquired substantially all of the assets of The Edwards Group of Companies. Results of operations of the Edwards Group are included in the results of the Fund for the period subsequent to the acquisition. Furthermore, Edwards' assets and liabilities have been consolidated with those of the Fund. In conjunction with the acquisition, the Fund completed a private placement of 1,595,000 Trust Units priced at $13.50 per unit for gross proceeds of approximately $21.5 million. The Fund's expenses in connection with the offering are approximately $1.1 million. Net assets acquired are as follows:



Accounts receivable 1,348,830
Inventory 3,672,603
Prepaid expenses and other assets 174,246
Property, plant and equipment 6,992,000
Intangible assets
Brand name 4,363,000
Distribution network 2,839,000
Patent 250,000
Goodwill 3,406,168
Accounts payable and accrued liabilities (1,360,104)
--------------
$ 21,685,743
--------------
--------------


OPERATING RESULTS

Three Months Ended Nine Months Ended
September 30 September 30
2005 2004 2005 2004(1)

Sales $26,755,797 $21,780,593 $67,133,220 $49,383,006
Cost of sales 13,747,630 11,027,731 35,340,204 26,073,271
------------ ----------- ----------- ------------
Gross margin 13,008,167 10,752,862 31,793,016 23,309,735
Operating expenses 4,889,898 4,103,524 11,652,359 10,322,831
------------ ----------- ----------- ------------
EBITDA before gain
on sale and IPO
expenses 8,118,269 6,649,338 20,140,657 12,986,904
Gain on sale (1) 0 0 0 (4,553,611)
IPO expenses 0 0 0 1,401,750
------------ ----------- ----------- ------------
EBITDA (2) 8,118,269 6,649,338 20,140,657 16,138,765
Amortization (3) 1,152,334 813,419 2,873,643 1,492,609
Interest expense 330,378 290,927 767,244 1,520,101
------------ ----------- ----------- ------------
Earnings before
tax 6,635,557 5,544,992 16,499,770 13,126,055
Tax expense
(recovery) 68,000 61,500 228,000 2,654,500
------------ ----------- ----------- ------------
Net earnings $ 6,567,557 $ 5,483,492 $16,271,770 $10,471,555
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------

Net earnings
per unit $ 0.59 $ 0.57 $ 1.53 $ 0.72(1)
------------ ----------- ----------- ------------

(1) Results for the nine-month period ended September 30, 2004
include the results of Ag Growth for the period January 1 to May
17, 2004. See "Basis of Management's Discussion and Analysis".
Also, certain figures have been reclassified to conform with the
current period's presentation.
(2) In January 2004 Ag Growth realized a gain on the sale of its
outstanding forward foreign exchange contracts. Due to the
significance of the gain it has been segregated from operating
expenses.
(3) See discussion of non-GAAP measures.

September 30, 2005 September 30, 2004

Total assets $147,535,726 $124,990,475
Total liabilities $ 32,391,992 $ 31,398,064



For the three and nine-month periods ended September 30, 2005, the Fund generated distributable cash of $0.6859 per unit and $1.7312 per unit respectively, and declared distributions of $0.3800 per unit and $1.0483 per unit for the periods then ended.

The table below summarizes the distributions declared for trust units of the Fund and for Class B Exchangeable limited partnership units and Class C Subordinated limited partnership units of AGX Holdings Limited Partnership:



Periods Ended September 30, 2005
Three Months Nine Months

Trust units $ 3,469,028 $ 8,989,661
Class B Exchangeable units 64,592 177,032
Class C Exchangeable
Subordinated units 731,880 2,005,929
-------------- --------------
$ 4,265,500 $ 11,172,622
-------------- --------------
-------------- --------------


Foreign Exchange

Sales and expenses are recorded at the monthly rate of exchange. As Ag Growth has historically generated over 60% of its sales in US Dollars, with a much lower proportion of its expenses being US Dollar denominated, a change in exchange rates has a significant effect on financial results.

The gain or loss on Ag Growth's currency hedging instruments and the gain or loss on the translation of US Dollar denominated working capital is reflected in expenses as a gain or loss on foreign exchange. Ag Growth's foreign currency hedging instruments impact sales only to the extent that a portion of the premium or discount on the forward at the time of entering the contract is amortized to sales. For the three and nine months ended September 30, 2005, the impact on sales was just $68,375 and $152,451 respectively.

For the three and nine-month periods ended September 30, 2005, the effective exchange rate to record U.S. dollar sales was $0.82, compared to $0.75 for the same periods in 2004. Accordingly, as the Fund's sales are not materially affected by its hedging instruments, sales for the three and nine-month periods reflect activity at these rates.

For the nine-month period ended September 30, 2005, the benefit of the Fund's hedging instruments was almost entirely eliminated by the strengthening dollar's impact on US Dollar working capital. As a result, the Fund's gain on foreign exchange for the period was just $0.1 million. Accordingly, as the net gain on foreign exchange is negligible, the Fund's EBITDA and net income for the period effectively reflect results of operations at a Canadian dollar exchange rate of approximately $0.82. For the three-month period ended September 30, 2005, the Fund recorded a net loss on foreign exchange of $0.3 million.

Sales

Sales for the three-month period ended September 30, 2005 increased $5.0 million or 22.8% over the same period in 2004. Sales for the quarter were positively impacted by the April 8, 2005 acquisition of the Edwards Group, which recorded sales of $5.2 million. Excluding Edwards, sales for the three-month period ended September 30, 2005 decreased $0.2 million or 0.1% compared to 2004. Sales in the third quarter of 2005 compared very favourably to the third quarter of 2004, which had been the strongest quarter in the history of the company. Sales in the Fund's key U.S. markets increased significantly over the record levels of 2004. Although sales in the third quarter of 2005 benefited from a September 2004 price increase of 8%, they were negatively impacted by an 8% decrease in the rate at which the Fund recorded US Dollar denominated sales, and by poor crop conditions in certain areas of the U.S., Western Canada, and Australia. The third quarter of 2005 was negatively impacted by the strength of the first two quarters of the year, as these quarters effectively captured some sales that historically would have been recorded in the third quarter.

For the nine-month period ended September 30, 2005, sales increased $17.8 million or 35.9% over the same period in 2004. Excluding Edwards, sales for the nine-month period ended September 30, 2005 increased $7.9 million or 16.1% over 2004. The significant increase in sales is largely the result of the Fund's ability to use its strong market share and geographic diversification to capitalize on favourable conditions in several key U.S. markets. The strength of the Fund's distribution network contributed to strong sales in certain drought-impacted areas of the U.S. corn belt. Sales benefited from price increases implemented throughout 2004 in response to rising input costs, and a trend towards larger, more expensive units, which resulted in higher per unit revenue in 2005. These factors more than offset the negative impact of a stronger Canadian Dollar, which resulted in U.S. Dollar denominated sales being recorded at rates approximately 8% lower than in the same period in 2004.

Expenses

Gross margin as a percentage of sales for the three and nine-month periods ended September 30, 2005 was 48.6% and 47.4% respectively, compared to 49.4% and 47.2% for the same periods in 2004. The strong gross margin recorded in the third quarter of 2005 was achieved despite recording U.S. Dollar denominated transactions at significantly lower rates of foreign exchange. The increase in gross margin in the nine months ended September 30, 2005 was largely the result of higher sales volumes and the benefit of price increases implemented in 2004, offset by the negative impact of foreign exchange. The inclusion of results for the Edwards Group in 2005 did not significantly impact gross margin percentages compared to the prior year.

Operating expenses for the three-months ended September 30, 2005 were $4.9 million, including $0.4 million recorded by the Edwards Group, compared to $4.1 million for the same period in 2004. Excluding Edwards, the increase of $0.4 million was the result of a number of factors. Long term incentive plan expense was $0.7 million higher than the prior year due to a 20% increase in the Fund's distribution rate and strong earnings that resulted in estimated taxable income exceeding expectations. Also, earnings based incentive programs resulted in salary expenses increasing $0.2 million over the prior year. These increases were offset by a $0.4 million decrease in the Fund's loss on foreign exchange, a $0.3 million decrease in sales commission that resulted from a reduction in commission rates and changes to the Fund's representation in certain U.S. states, and a $0.2 million decrease in legal fees compared to the prior year. A number of smaller miscellaneous items accounted for the remaining change.

For the nine-month period ended September 30, 2005, operating expenses were $11.7 million, including $0.9 million recorded by the Edwards Group, compared to $10.3 million in 2004, prior to the gain Ag Growth realized on the sale of its outstanding forward foreign exchange contracts and the accrual of IPO expenses. For the reasons noted above, compared to the nine-month period ended September 30, 2004, expenses related to the Fund's long term incentive plan increased $0.7 million and salary expenses increased $0.5 million. Also, for the nine months ended September 30, 2005 the Fund recorded a gain on foreign exchange of $0.1 million, compared to a loss of $0.6 million in the prior year. Also, expenses were lower in 2005 due to the elimination of management fees payable to the owners of Ag Growth prior to the IPO that totalled $0.3 million in the period January 1, 2004 to May 17, 2004. A number of smaller miscellaneous items accounted for the remaining change.

Prior to the initial public offering, Ag Growth realized a net gain of $4.6 million on the sale of its forward foreign exchange contracts. Ag Growth subsequently entered into a number of new forward foreign exchange contracts that continue to form part of the Fund's hedging strategy. The $4.6 million gain on sale significantly affected Ag Growth's financial results for the nine-month period ended September 30, 2004.

Included in the results of Ag Growth for the period of January 1, 2004 to May 17, 2004 is the accrual of $1.4 million of IPO related costs. No unusual costs were recorded in the three and nine-month periods ended September 30, 2005.

Net earnings and EBITDA (see discussion of non-GAAP measures)

EBITDA for the three months ended September 30, 2005 was $8.1 million, compared to $6.6 million in the same period in 2004. The significant increase in EBITDA is primarily the result of the acquisition of the Edwards Group on April 8, 2005 and a strong performance by the Fund's largest division, Westfield Industries, partially offset by an increase in operating expenses.

EBITDA for the nine months ended September 30, 2005 was $20.1 million, compared to $13.0 million in 2004 prior to the gain Ag Growth realized on the sale of its outstanding forward foreign exchange contracts and the accrual of IPO expenses. The significant increase in EBITDA is the result of the acquisition of the Edwards Group, strong sales and favourable gross margins at the other divisions, particularly Westfield, partially offset by an increase in operating expenses. After recognition of the gain on sale and the accrual of IPO expenses, EBITDA for the nine months ended September 30, 2004 was $16.1 million.

Upon completion of the IPO on May 18, 2004, the Fund retired the existing debt obligations of Ag Growth and entered into a new credit facility with a single lender. The credit facility includes term debt of $20 million and an operating facility of $15 million, increasing to $18 million for the period May 31 to September 30 each year. Both facilities bear interest at rates based on performance calculations. For the three and nine-month periods ended September 30, 2005, the Fund's effective interest rate on its term debt was 4.5%, and after consideration of the effect of the Funds interest rate swap (see "Financial Instruments") was 4.5% and 4.4% respectively.

Amortization for the three and nine-month periods ended September 30, 2005 was $1.2 million and $2.9 million respectively. Amortization for the three-months ended September 30, 2005 includes the amortization of intangible assets of $0.5 million, the amortization of deferred financing costs of $0.2 million, and the amortization of property, plant and equipment of $0.5 million. Amortization for the nine months ended September 30, 2005 includes the amortization of intangible assets of $1.2 million, the amortization of deferred financing costs of $0.4 million, and the amortization of property, plant and equipment of $1.3 million. For the three and nine-month periods ended September 30, 2005, the increase in amortization of property, plant and equipment and intangibles is largely the result of the acquisition of the Edwards Group.

The Fund is a mutual fund trust for income tax purposes and therefore is not subject to tax on income distributed to unitholders. The manufacturing business operations of the Fund are carried out within a limited partnership. Income from the limited partnership is not subject to tax but flows through to the holders of the partnership units, which include the Fund. The Fund's distributions are taxable in the hands of the unitholders. As a result of the Fund's structure, tax expense is recorded only for the Fund's subsidiary corporations. The recorded tax expense of $68,000 and $228,000 for the three and nine-month periods ended September 30, 2005 represents income taxes and large corporation tax payable on the net income and taxable capital primarily allocated to Ag Growth through its ownership in AGLP after deductions for interest expense, financing fees and capital taxes.

Net earnings for the three and nine-month periods ended September 30, 2005 were $6.6 million and $16.3 million respectively, and earnings per basic and diluted unit were $0.59 and $1.53 for the periods then ended.



Quarterly Financial Information

2005 Q3 2005 Q2 2005 Q1

Total sales $26,755,797 $24,363,985 $16,013,438
Gain (loss) on foreign
exchange $ (274,763) $ 115,822 $ 220,020
Net earnings $ 6,567,557 $ 6,255,028 $ 3,449,185
Basic and diluted net earnings
per unit $ 0.59 $ 0.56 $ 0.36


2004 Q4 2004 Q3 2004 Q2(1)

Total sales $13,911,771 $21,780,593 $7,855,520
Gain (loss) on foreign
exchange $ 3,552 $ (626,254) $ (520,596)
Net earnings $ 1,798,911 $ 5,483,492 $1,441,006
Basic and diluted net earnings
per unit $ 0.19 $ 0.57 $ 0.15


(1) Includes Ag Growth's operations only for the 44-day period May 18
to June 30, 2004.

(2) Certain comparative figures have been reclassified to conform to
the current period's presentation.


The second and third quarters of 2005, compared to the same periods in 2004, were significantly impacted by the April 8, 2005 acquisition of the Edwards Group. Also, the second quarter of 2004 reflects the operations of Ag Growth for only the 44-day period from the date of the Fund's May 18, 2004 initial public offering to the quarter-end date. The first and second quarters of 2005 were also stronger than usual due to the demand that resulted from lean inventory levels following the record 2004 U.S. harvest.

Interim period revenues and earnings historically reflect some seasonality. The third quarter is typically the strongest primarily due to high in-season demand at the farm level. Distributable cash generated per unit will also typically be highest in the third quarter. The Fund's collections of accounts receivable are weighted towards the third and fourth quarters. This collection pattern, combined with seasonally high sales in the third quarter, result in accounts receivable levels increasing throughout the year and peaking in the third quarter. In order to ensure the Fund has adequate supply throughout its distribution network in advance of the in-season demand experienced primarily in the third quarter, inventory levels must be gradually increased throughout the year. Accordingly, inventory levels typically increase in the first and second quarters and then begin to decline in the third or fourth quarter as sales levels exceed production.

As a result of these working capital movements, historically, Ag Growth's use of its bank revolver is typically highest in the first and second quarters. The revolver balance would normally begin declining in the third quarter as collections of accounts receivable increase. Ag Growth has generally fully repaid its revolver balance by early in the fourth quarter.

CASHFLOW AND LIQUIDITY

The table below reconciles net income to cash flow from operations for the three and nine-month periods ended September 30, 2005 and September 30, 2004. Consistent with the discussion above, the three and nine-month periods ended September 30, 2005 and 2004 reflect an increase in accounts receivable. Also, strong preseason demand resulted in higher than usual customer deposits in the fourth quarter of 2004. The Fund invested significantly in working capital in the first six months of 2004 and 2005, however in the third quarter of both years the Fund recognized positive cash flow from changes in working capital balances.



Nine-Months Three-Months
Ended Sep 30 Ended Sep 30
2005 2004(1) 2005 2004

Net income $16,271,770 $10,471,555 $ 6,567,557 $ 5,483,492

Add charges
(deduct credits)
to operations not
requiring a
current cash
payment:
Amortization 2,873,643 1,492,609 1,152,334 813,419
Future income
taxes 183,000 62,000 53,000 51,000
Deferred foreign
exchange loss (467,451) (639,013) (350,703) (431,690)
Loss (gain) on
sale of assets (10,082) 490 0 0
------------ ----------- ----------- ------------

18,850,880 11,387,641 7,422,188 5,916,221
Net change in
non-cash working
capital balances
related to
operations:
Accounts
receivable (11,809,514) (9,248,457) (1,164,955) (773,702)
Inventory (1,314,070) (1,868,850) 529,215 1,705,830
Prepaid expenses
and other 484,542 (253,228) 103,879 71,067
Accounts payable 1,779,059 1,537,344 1,167,374 1,050,539
Long term
incentive plan 421,029 0 394,837 0
Customer deposits (2,792,954) 152,412 184,880 211,353
Income tax payable 395,420 (915,063) 15,000 (1,406,985)
------------ ----------- ----------- ------------

(12,836,488) (10,595,842) 1,096,230 858,102
------------ ----------- ----------- ------------

Cash flow from
operations 6,014,392 791,799 8,652,418 6,774,323

Add (deduct)
unusual items: (2)
IPO expenses 0 1,401,750 0 0
Gain on sale (3) 0 (4,553,611) 0 0
------------ ----------- ----------- ------------

Cash flow from
(used in)
operations after
unusual items $ 6,014,392 $(2,360,062) $ 8,652,418 $ 6,774,323
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------

(1) Results for the nine-month period ended September 30, 2004
include the results of Ag Growth for the period January 1 to May
17, 2004. See "Basis of Management's Discussion and Analysis".
(2) Due to the significance of the IPO expenses and the gain on sale
of outstanding foreign exchange contracts, and their impact on
the comparability of results, cash flow used in operations for
the nine-month period ended September 30, 2004 has also been
presented net of these items.
(3) In January 2004 Ag Growth realized a gain on the sale of its
outstanding forward foreign exchange contracts. Due to the
significance of the gain it has been segregated from operating
expenses.


The Fund had capital expenditures of $0.1 million in the three-months ended September 30, 2005 and $0.9 million in the nine-month period then ended. Capital expenditures in the three-month period ended September 30, 2005 related primarily to purchases of manufacturing equipment, while capital expenditures for the nine-month period ended September 30, 2005 related primarily to the purchases of manufacturing equipment, forklifts, and semi trailer units. For the nine-month period ended September 30, 2005, the Fund's cash balance decreased $6.7 million, which was in line with management expectations for the reasons discussed above. Consistent with prior years, management expects to fully repay its revolver facility in the fourth quarter.



CONTRACTUAL OBLIGATIONS

Total 2005 2006 2007 2008 2009+

Long-term
debt 20,076,965 10,873 33,495 10,027,008 10,005,589 0
Operating
leases 1 ,400,155 125,296 427,937 373,217 255,604 218,101
---------- ------- ------- ---------- ---------- -------
Total
obligations 21,477,120 136,169 461,432 10,400,225 10,261,193 218,101
---------- ------- ------- ---------- ---------- -------
---------- ------- ------- ---------- ---------- -------


The term loan matures May 2006 and is extendible annually for an additional one-year term at the lender's option. Under the terms of the credit facility agreement, if the bank elects to not extend the operating loan and term loan facilities beyond the current May 31, 2006 maturity date, all amounts outstanding under the facilities become repayable in four equal quarterly instalments of principal, commencing on the last day of the third month following the first anniversary of the expiry date.

The operating leases relate to vehicle, equipment, and warehouse facility leases entered into in the normal course of business.


TRANSACTIONS WITH RELATED PARTIES

Under the terms of the long term incentive plan ("LTIP"), 10% to 20% of cash distributions in excess of an established threshold are payable to plan participants. The cost is accrued as an expense in the period when it is determined an amount payable under the LTIP is likely. For the three and nine-month periods ended September 30, 2005, LTIP expense was $660,625 and 686,817 respectively.

DISTRIBUTIONS

Distributions are paid at the end of the month that follows the month when the cash was earned. The Fund declared distributions to public unitholders of $3.5 million and $9.0 million for the three and nine-month periods ended September 30, 2005. Furthermore, consistent with the Fund's prospectus dated May 5, 2004, the Fund declared distributions to Ag Growth's previous owners of $0.8 million and $2.2 million for the three and nine-month periods ended September 30, 2005.

The Fund's policy is to make monthly distributions to holders of both Trust units and Class B Exchangeable limited partnership units. Furthermore, in accordance with the terms of the Fund's prospectus, holders of Class C Subordinated Exchangeable limited partnership units receive distributions quarterly provided the relevant terms of subordination have been met, which they have since the inception of the Fund.

The Fund's Declaration of Trust requires that it distribute all taxable income earned in its fiscal period ending December 31. It may be necessary for the Fund to estimate a special year-end distribution to achieve this requirement. The initial distribution, if any, will be declared in December and paid to unitholders of record on December 30. Upon completion of the annual financial statements, a final determination of any additional distribution will be made, and the additional amount, if any, will be paid to unitholders of record at that time. If the Fund is required to make an additional distribution, the unitholders of record on December 30 will be required to include the amount of the additional distribution in their taxable income. If they are not unitholders at the record date of the additional payment they will be required to include the amount in their taxable income even though they do not receive the distribution. Those unitholders, however, can reduce their capital gain on the sale by the amount of the additional distribution.

The Fund's Board of Trustees reviews financial performance and other factors when assessing the Fund's distribution levels. An adjustment to distribution levels will be made at such time as the Board determines the adjustment is sustainable and in the long-term best interest of the Fund and its unitholders.

Distributable cash generated for the three and nine-month periods ended September 30, 2005 is calculated as follows:




Nine -Months Three-Months
Ended Ended
September 30, September 30,
2005 2005

Net income for the period $ 16,271,770 $ 6,567,557
Add: Amortization 2,873,643 1,152,334
Interest expense 767,244 330,378
Tax expense 228,000 68,000
------------ ------------
EBITDA (1) 20,140,657 8,118,269
Less: Interest expense 767,244 330,378
Net capital expenditures 877,210 73,640
Current income taxes 45,000 15,000
------------ ------------
Distributable cash (1) $ 18,451,203 $ 7,699,251
------------ ------------

Weighted average units outstanding 10,658,278 11,225,000
Distributable cash generated per unit $ 1.7312 $ 0.6859
Distributions declared per unit $ 1.0483 $ 0.3800
Distribution percentage 60.55% 55.40%

(1) See discussion of non-GAAP measures below.


Historical distributable cash generated per unit and distributions declared as a percentage of distributable cash generated is as follows:



---------------------------------------------------------------------
2004 Distributable Cash
---------------------------------------------------------------------
Generated per Unit Distribution %
3 mos. YTD Quarter YTD
Q2 (1) $0.18 $0.18 88.8% 88.8%
Q3 $0.63 $0.81 51.6% 59.8%
Q4 $0.20 $1.01 163.5% 80.3%
Special N/A N/A N/A 94.0%

(1) Includes Ag Growth's operations only for the 44-day period May 18
to June 30, 2004.

---------------------------------------------------------------------
2005 Distributable Cash
---------------------------------------------------------------------
Generated per Unit Distribution %
3 mos. YTD Quarter YTD
Q1 $0.40 $0.40 82.6% 82.6%
Q2 $0.64 $1.04 54.2% 64.2%
Q3 $0.69 $1.73 55.4% 60.6%


CAPITAL RESOURCES

The term loan matures May 2006 and is extendible annually at the lender's option. The Fund also has available a $15 million operating facility, increasing to $18 million for the period May 31 to September 30. At September 30, 2005, the Fund's bank indebtedness was $1.0 million. Under the terms of the credit facility agreement, if the bank elects to not extend the operating loan and term loan facilities beyond the current May 31, 2006 maturity date, all amounts outstanding under the facilities become repayable in four equal quarterly instalments of principal, commencing on the last day of the third month following the first anniversary of the expiry date. In addition, under the terms of the facility agreement, the operating and term loan facilities will bear interest at prime plus 0.0%, 0.50%, or 1.00% per annum based on performance calculations. The Fund is party to an interest rate swap agreement to mitigate the impact of fluctuating interest rates on its term loan.

OFF-BALANCE SHEET ARRANGEMENTS

The Fund has no off balance sheet arrangements with the exception of the interest rate swap and foreign currency contracts discussed below in Financial Instruments.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. The Fund believes the accounting policies that are critical to its business relate to the use of estimates regarding the recoverability of accounts receivable and the valuation of inventory, intangibles, and goodwill. Due to the nature of Ag Growth's business and the credit terms it provides to its customers, estimates and judgments are inherent in the on-going assessment of the recoverability of accounts receivable. In addition, assessments and judgments are inherent in the determination of the net realizable value of inventories. Another area requiring judgment includes the allocation of the purchase price related to the IPO and the acquisition of the Edwards Group, specifically the allocation between goodwill and other intangible assets, and the amortization period of the intangible assets. In the normal course of its operations, the Fund may become involved in various legal actions. The Fund maintains, and regularly updates on a case-by-case basis, provisions when the expected loss is both likely and can be reasonably estimated. While management has applied judgment based on assumptions believed to be reasonable in the circumstances, actual results can vary from these assumptions. It is possible that materially different results would be reported using different assumptions.

FINANCIAL INSTRUMENTS

Risk from foreign exchange arises as a result of variations in exchange rates between the Canadian and the U.S. Dollar. Historically, over 60% of Ag Growth's sales are denominated in US Dollars while a much smaller proportion of its expenses are denominated in this currency. The Fund has entered into foreign exchange contracts with a Canadian chartered bank to hedge its foreign currency exposure on anticipated US dollar sales transactions and the collection of the related accounts receivable. At September 30, 2005, the Fund had outstanding USD $34.2 million of forward foreign exchange contracts, dated from October 2005 to December 2007, with a Canadian Dollar equivalent of $44.9 million. The Fund also has outstanding reverse knock-in currency options consisting of a series of call and put options, with a face value of U.S. $4.6 million, at rates of $1.1363 and $1.2750 respectively, with maturities dated from March 2007 to December 2007. As at September 30, 2005, the Fund has recorded a deferred foreign exchange loss of $0.5 million with respect to its hedged accounts receivable. At September 30, 2005, the unrealized gain on forward foreign exchange contracts was $5.3 million.

The Fund is subject to risks associated with fluctuating interest rates on its long-term debt. To manage this risk, the Fund has entered into an interest rate swap transaction with a Canadian chartered bank. The swap transaction expires on May 4, 2008 and involves the exchange of the underlying floating interest rate for an effective fixed interest rate of 3.68%, resulting in interest charges to the Fund of 3.68% plus a variable rate based on performance calculations. The notional amount of the swap transaction at September 30, 2005 was $20.0 million. At September 30, 2005, a cash payment of $77,498 would have been required to settle the interest rate swap.

The Fund manages its short-term cash position partially through the use of foreign exchange swap contracts. At September 30, 2005, the Fund had outstanding USD $2.9 million of foreign exchange swap contracts with maturities in October 2005, with a Canadian Dollar equivalent of $3.4 million. The recognized fair value of the foreign currency swap arrangements at September 30, 2005 resulted in a liability of $40,671.

CHANGES IN ACCOUNTING POLICIES

In an effort to harmonize Canadian GAAP with US GAAP, the Canadian Accounting Standards Board has issued the following sections:

- 1530, Comprehensive Income;

- 3855, Financial Instruments-Recognition and Measurement; and

- 3865, Hedges.

Under these new standards, all financial assets should be measured at fair value with the exception of loans, receivables and investments that are intended to be held to maturity and certain equity investments, which should be measured at cost. Similarly, all financial liabilities should be measured at fair value when they are held for trading or they are derivatives. Gains and losses on financial instruments measured at fair value will be recognized in the income statement in the periods they arise with the exception of gains and losses arising from:

- Financial assets held for sale, for which unrealized gains and losses are deferred in other comprehensive income until sold or impaired; and

- Certain financial instruments that qualify for hedge accounting.

Sections 3855 and 3865 of the CICA Handbook make use of "other comprehensive income". Other comprehensive income comprises revenues, expenses, gains and losses that are recognized in comprehensive income, but are excluded from net income. Unrealized gains and losses on qualifying hedging instruments, translation of self-sustaining foreign operations, and unrealized gains or losses on financial instruments held for sale will be included in other comprehensive income and reclassified to net income when realized. Comprehensive income and its components will be a required disclosure under the new standard. These new standards are effective for fiscal years beginning on or after October 1, 2006 and early adoption is permitted. Management has not yet determined the impact of the adoption of these standards on the presentation of the Fund's results from operations or financial position.

RISKS AND UNCERTAINTIES

The risks and uncertainties described below are not the only risks and uncertainties we face. We believe that the risks mentioned are the principal risks relating to our operations. There are other risks that relate to the structure of the Fund. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may impair operations. If any of the following risks actually occur, our business, results of operations and financial condition, and the amount of cash available for distribution could suffer.

Industry Cyclicality

The performance of the farm equipment industry is cyclical, with sales depending on the performance of the agricultural sector. To the extent that the agricultural sector declines or experiences a downturn, this is likely to have a negative impact on the farm equipment industry.

Seasonality of Business

The seasonality of the demand for Ag Growth's products results in lower cash flow in the first three quarters of each calendar year and may impact the ability of the Fund to make cash distributions to Unitholders, or the quantum of such distributions, if any. No assurance can be given that the Fund's credit facility will be sufficient to offset the seasonal variations in Ag Growth's cash flow.

Risk of Decreased Crop Yields

Decreased crop yields due to poor weather conditions and other factors are a significant risk affecting Ag Growth. Both reduced crop volumes and the accompanying decline in farm incomes can negatively affect demand for grain handling equipment.

Potential Volatility of Production Costs

Various materials and components are purchased in connection with Ag Growth's manufacturing process, some or all of which may be subject to wide price variation. Consistent with past and current practices within the industry, Ag Growth manages its exposure to material and component price volatility by planning and negotiating significant purchases on an annual basis, and passing through to customers, most, if not all, of the price volatility. There can be no assurance that industry dynamics will allow Ag Growth to continue to reduce its exposure to volatility of production costs by passing through price increases to its customers.

Commodity Prices, International Trade and Political Uncertainty

Prices of commodities are influenced by a variety of unpredictable factors that are beyond the control of Ag Growth, including weather, government (Canadian, United States and other) farm programs and policies, and changes in global demand or other economic factors. The world grain market is subject to numerous risks and uncertainties, including risks and uncertainties related to international trade and global political conditions.

Competition

Ag Growth experiences competition in the markets in which it operates. Certain of Ag Growth's competitors may have greater financial and capital resources than Ag Growth. Ag Growth could face increased competition from newly formed or emerging entities, as well as from established entities that choose to focus (or increase their existing focus) on Ag Growth's primary markets. As the grain handling equipment sector is fragmented, there is also a risk that a larger, formidable competitor may be created through a combination of one or more smaller competitors. Ag Growth may also face potential competition from the emergence of new products or technology.

Business Interruption

The operation of the manufacturing facilities of Ag Growth are subject to a number of business interruption risks, including delays in obtaining production materials, plant shutdowns, labour disruptions and weather conditions/natural disasters. Ag Growth may suffer damages associated with such events that it cannot insure against or which it may elect not to insure against because of high premium costs or other reasons. For instance, Ag Growth's Rosenort facility is located in an area that was affected by widespread floods experienced in Manitoba in 1997, and insurance coverage for this type of business interruption is limited. Ag Growth is not able to predict the occurrence of business interruptions.

Litigation

In the ordinary course of its business, Ag Growth may be party to various legal actions, the outcome of which cannot be predicted with certainty. One category of potential legal actions is product liability claims. Farming is an inherently dangerous occupation. Grain handling equipment used on farms may result in product liability claims that require not only proper insuring of risk, but management of the legal process as well.

Dependence on Key Personnel

Ag Growth's future business, financial condition, and operating results depend on the continued contributions of certain of Ag Growth's executive officers and other key management and personnel, certain of whom would be difficult to replace.

Distribution, Sales Representative and Supply Contracts

Ag Growth typically does not enter into written agreements with its dealers, distributors or suppliers. As a result, such parties may, without notice or penalty, terminate their relationship with Ag Growth at any time. In addition, even if such parties should decide to continue their relationship with Ag Growth, there can be no guarantee that the consideration or other terms of such contracts will continue on the same basis.

Foreign Exchange Risk

Ag Growth generates a majority of its sales in US dollars, but a materially smaller proportion of its expenses are denominated in US dollars. As a result, a significant strengthening of the Canadian dollar against the US dollar will negatively impact the return from US dollar sales revenue. To mitigate the effects of exchange rate fluctuation, management has implemented a hedging strategy of purchasing foreign exchange contracts. Ag Growth has entered into a series of hedging arrangements to mitigate the potential effect of fluctuating exchange rates through December 2007. To the extent that Ag Growth does not adequately hedge its foreign exchange risk, changes in the exchange rate between the Canadian dollar and the US dollar may have a material adverse effect on Ag Growth's results of operations, business, prospects and financial condition.

Potential Undisclosed Liabilities Associated with Acquisitions

To the extent that prior owners of businesses acquired by Ag Growth failed to comply with or otherwise violated applicable laws, Ag Growth, as a successor owner, may be financially responsible for these violations. In particular, to the extent that businesses acquired by Ag Growth have failed to make all necessary filings with applicable governmental, regulatory or tax authorities prior to the date of their acquisition by Ag Growth, Ag Growth may be subject to certain penalties and/or liabilities.

Uninsured and Underinsured Losses

Ag Growth will use its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance coverage on its assets and operations at a commercially reasonable cost and on suitable terms. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of its assets or cover the cost of a particular claim.

Distributions

The Fund's Declaration of Trust requires that it distribute all taxable income earned in its fiscal period ending December 31. It may be necessary for the Fund to estimate a special year-end distribution to achieve this requirement. The initial distribution, if any, will be made in December and paid to unitholders of record on December 30. Upon completion of the annual financial statements, a final determination of any additional distribution will be made, and the additional amount, if any, will be paid to unitholders of record at that time. If the Fund is required to make an additional distribution, the unitholders of record on December 30 will be required to include the amount of the additional distribution in their taxable income. If they are not unitholders at the record date of the additional payment they will be required to include the amount in their taxable income even though they do not receive the distribution.

Uncertainty Regarding Taxation of Income Trusts

On September 8, 2005, the Department of Finance (Canada) released a consultation paper on tax and other issues related to publicly listed flow-through entities (''FTEs'') such as income trusts and limited partnerships and invited interested parties to make submissions prior to December 31, 2005. The stated focus of the consultation paper is to assess the tax and economic efficiency implications of FTEs to determine if the current tax system is appropriate or should be modified. Although the consultation paper does not propose any particular legislative or administrative changes, it identifies possible policy approaches, including limiting the deduction of interest expenses by operating entities, taxing FTEs in a manner similar to corporations or better integrating the personal and corporate income tax systems to make the tax system more neutral between forms of business organizations. On September 19, 2005, the Minister of Finance (Canada) announced that he had requested that CRA postpone providing advance income tax rulings respecting FTE structures pending these consultations, that the Department of Finance (Canada) is closely monitoring developments in the FTE market with a view to proposing measures in response to the consultations and that consideration would be given to what, if any, transitional measures were appropriate. Further initiatives in this area, if any, including the possible initiatives referred to in the consultation paper, may be taken following the completion of such consultations. Accordingly, legislative changes in this area are possible, and such changes could result in the income tax considerations described herein being materially different in certain respects.

OUTLOOK

The Fund expects the fourth quarter of 2005 to follow the pattern of earlier years. In general, as harvest nears completion there are fewer in-season sales, order backlogs decrease, and the focus moves to preseason bookings and fiscal 2006. Based on market conditions and current order backlogs, the Fund anticipates its fourth quarter to approximate the results of prior years. In conjunction with the distributable cash generated in the nine months ended September 30, 2005, it appears likely the Fund's results for fiscal 2005 will exceed expectations. Accordingly, as the Fund's Declaration of Trust requires that it distribute all taxable income earned in its fiscal year ending December 31, the Fund's Board of Trustees will meet again in December to determine if an additional special distribution should be paid with respect to fiscal 2005.

Looking forward to 2006, the Fund anticipates industry sentiment to be positive following a largely successful 2005 harvest, and accordingly expects favourable results in the first and second quarters of the new year. However, it is not currently anticipated that market demand in the first half of 2006 will meet the exceptional demand experienced in the first half of 2005. Consistent with prior years, demand in 2006, particularly in the second half, will be influenced by crop conditions.

NON-GAAP MEASURES

References to "EBITDA" are to earnings before interest, income taxes, depreciation, and amortization. Management believes that, in addition to net income or loss, EBITDA is a useful supplemental measure in evaluating its performance. Specifically, management believes that EBITDA is the appropriate measure from which to make adjustments to determine the Fund's distributable cash. EBITDA is not a financial measure recognized by Canadian generally accepted accounting principles ("GAAP") and does not have a standardized meaning prescribed by GAAP. Management cautions investors that EBITDA should not replace net income or loss as an indicator of performance, or cash flows from operating, investing, and financing activities as a measure of the Fund's liquidity and cash flows. The Fund's method of calculating EBITDA may differ from the methods used by other issuers.

Distributable cash is a non-GAAP measure generally used by Canadian income funds as an indicator of financial performance. The Fund defines distributable cash as EBITDA less interest expense, maintenance capital expenditures, and current taxes. The method of calculating the Fund's distributable cash may differ from similar computations as reported by similar entities and, accordingly, may not be comparable to distributable cash as reported by such entities.

Amortization in the Combined Operating Results for the nine-month period ended September 30, 2004 is a non-GAAP measure as amortization, based on a combination of assets valued at historical cost and fair value, would not be combined when reporting under GAAP. The combined operating results for the nine-month period ended September 30, 2004, representing the financial results of Ag Growth prior to its acquisition by the Fund (January 1, 2004 to May 17, 2004) and the Fund's financial results from inception to September 30, 2004, have been presented to provide the reader with additional information to enhance comparability to operating results of the Fund for the nine-month period ended September 30, 2005.

FORWARD-LOOKING STATEMENTS

This Management Discussion and Analysis may contain forward-looking statements which reflect our expectations regarding the future growth, results of operations, performance and business prospects, and opportunities of the Fund. Forward-looking statements contain such words as "anticipate", "believe", "continue", "could", "expects", "intend", "plans" or similar expressions suggesting future conditions or events. Such forward-looking statements reflect our current beliefs and are based on information currently available to us. Forward-looking statements involve significant risks and uncertainties. A number of factors could cause actual results to differ materially from results discussed in the forward-looking statements, including the effects, as well as changes in national and local business conditions, decreased crop yields, industry cyclicality, and competition. Although the forward-looking statements contained in this MD&A are based on what we believe to be reasonable assumptions, we cannot assure readers that actual results will be consistent with these forward-looking statements.

ADDITIONAL INFORMATION

Additional information relating to the Fund, including all public filings, is available on SEDAR (www.sedar.com).



Unaudited Interim Consolidated Financial Statements

Ag Growth Income Fund

September 30, 2005


UNAUDITED INTERIM CONSOLIDATED BALANCE SHEETS

As at As at
September 30, December 31,
2005 2004
$ $
---------------------------------------------------------------------

ASSETS (notes 10 and 11)
Current
Cash and cash equivalents - 7,001,929
Accounts receivable 17,673,397 4,515,053
Inventory (note 6) 20,460,250 15,473,577
Prepaid expenses and other assets 648,129 958,425
---------------------------------------------------------------------
Total current assets 38,781,776 27,948,984
---------------------------------------------------------------------
Property, plant and equipment (note 7) 12,190,096 5,623,174
---------------------------------------------------------------------
Other assets
Goodwill 35,970,059 32,888,891
Intangible assets (note 8) 59,364,878 53,144,658
Deferred financing costs (note 9) 248,566 454,559
Future tax assets (note 13) 465,000 563,000
Deferred foreign exchange loss 515,351 47,900
---------------------------------------------------------------------
96,563,854 87,099,008
---------------------------------------------------------------------
147,535,726 120,671,166
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness (note 10) 1,000,222 -
Accounts payable and accrued liabilities 7,184,008 4,044,845
Customer deposits 1,032,217 3,825,171
Income taxes payable 471,013 75,593
Distributions payable 1,940,750 2,789,041
Long-term incentive plan (note 15) 686,817 265,788
Current portion of long-term debt (note 11) 33,495 33,495
---------------------------------------------------------------------
Total current liabilities 12,348,522 11,033,933
Long-term debt (note 11) 20,043,470 20,068,593
---------------------------------------------------------------------
Total liabilities 32,391,992 31,102,526
Commitments (notes 16 and 18)
Unitholders' equity 115,143,734 89,568,640
---------------------------------------------------------------------
147,535,726 120,671,166
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes

On behalf of the Board of Trustees:

(signed) Rod Senft (signed) John R. Brodie, FCA
Trustee Trustee


Ag Growth Income Fund

UNAUDITED INTERIM CONSOLIDATED
STATEMENTS OF EARNINGS

Nine-month 191-day
Three month period ended period period
------------------------ ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004(1)
(note 2)
$ $ $ $
---------------------------------------------------------------------

Sales 26,755,797 21,780,593 67,133,220 29,636,113
Cost of goods sold 13,747,630 11,027,731 35,340,204 15,055,513
---------------------------------------------------------------------
Gross margin 13,008,167 10,752,862 31,793,016 14,580,600
---------------------------------------------------------------------
Expenses
Selling, general and
administration 3,672,395 3,134,081 10,073,401 4,294,284
Professional fees 95,758 197,350 353,317 231,961
Long-term incentive
plan 660,625 - 686,817 -
Research and
development 125,237 100,519 492,306 141,348
Capital taxes 97,358 81,878 222,358 138,930
Loss (gain) on
foreign exchange 274,763 626,254 (61,079) 1,146,850
Other income (36,238) (36,558) (114,761) (32,594)
---------------------------------------------------------------------
4,889,898 4,103,524 11,652,359 5,920,779
---------------------------------------------------------------------
Earnings before the
following 8,118,269 6,649,338 20,140,657 8,659,821
---------------------------------------------------------------------
Interest expense
Short-term debt 87,298 59,803 99,908 103,459
Long-term debt 243,080 231,124 667,336 334,241
---------------------------------------------------------------------
330,378 290,927 767,244 437,700
---------------------------------------------------------------------
Earnings before
amortization and
income taxes 7,787,891 6,358,411 19,373,413 8,222,121
---------------------------------------------------------------------
Amortization of
property, plant
and equipment 536,693 183,599 1,301,870 286,851
Amortization of
deferred
financing costs 174,751 257,765 339,993 377,450
Amortization of
intangible assets 440,890 372,055 1,231,780 540,822
---------------------------------------------------------------------
1,152,334 813,419 2,873,643 1,205,123
---------------------------------------------------------------------
Earnings before
provision for
income taxes 6,635,557 5,544,992 16,499,770 7,016,998
---------------------------------------------------------------------
Provision for income
taxes (note 13)
Current 15,000 10,500 45,000 15,500
Future 53,000 51,000 183,000 77,000
---------------------------------------------------------------------
68,000 61,500 228,000 92,500
---------------------------------------------------------------------
Net earnings for
the period 6,567,557 5,483,492 16,271,770 6,924,498
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and diluted net
earnings per unit $0.59 $0.57 $1.53 $0.72
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and diluted
weighted average
number of units
outstanding 11,225,000 9,630,000 10,658,278 9,630,000
---------------------------------------------------------------------
---------------------------------------------------------------------

(1) (includes the results of Ag Growth's operations for the 136-day
period from May 18, 2004 to September 30, 2004).

See accompanying notes

Ag Growth Income Fund

UNAUDITED INTERIM CONSOLIDATED
STATEMENT OF UNITHOLDERS' EQUITY

Nine-month period ended September 30, 2005

Unitholders' Accumulated Accumulated
capital earnings distributions Total
$ $ $ $
---------------------------------------------------------------------
(note 12)

Balance,
beginning
of period 89,954,248 8,723,409 (9,109,017) 89,568,640
Issuance of
units (note 5) 21,532,500 - - 21,532,500
Issuance costs
(note 5) (1,056,554) - - (1,056,554)
Net earnings for
the period - 16,271,770 - 16,271,770
Distributions
declared - - (11,172,622) (11,172,622)
---------------------------------------------------------------------
Balance, end
of period 110,430,194 24,995,179 (20,281,639) 115,143,734
---------------------------------------------------------------------
---------------------------------------------------------------------

191-day period ended September 30, 2004 and 283-day period ended
December 31, 2004

(includes the results of Ag Growth's operations
for the 136-day period from May 18, 2004 to September 30, 2004 and
for the 228-day period ended December 31, 2004) (note 2)


Unitholders' Accumulated Accumulated
capital earnings distributions Total
$ $ $ $
---------------------------------------------------------------------

Issuance of
initial
subscriber units 30 - - 30
Redemption of
initial
subscriber units (30) - - (30)
Issuance of units
on initial
public offering 69,040,000 - - 69,040,000
Issuance costs (6,345,752) - - (6,345,752)
Issuance of AGHLP
units as
consideration on
acquisition of
Ag Growth 27,260,000 - - 27,260,000
Net earnings for
the 191-day
period ended
September 30,
2004 - 6,924,498 - 6,924,498
Distributions
declared during
the 191-day
period ended
September 30,
2004 - - (4,651,228) (4,651,228)
---------------------------------------------------------------------
Balance,
September 30,
2004 89,954,248 6,924,498 (4,651,228) 92,227,518
---------------------------------------------------------------------
---------------------------------------------------------------------
Net earnings for
the three-month
period ended
December 31,
2004 - 1,798,911 - 1,798,911
Distributions
declared during
the three-month
period ended
December 31,
2004 - - (4,457,789) (4,457,789)
---------------------------------------------------------------------
Balance,
December 31,
2004 89,954,248 8,723,409 (9,109,017) 89,568,640
---------------------------------------------------------------------
---------------------------------------------------------------------
See accompanying notes

Ag Growth Income Fund

UNAUDITED INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOWS

Nine-month 191-day
Three month period ended period period
------------------------ ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004(1)
(note 2)
$ $ $ $
---------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings for
the period 6,567,557 5,483,492 16,271,770 6,924,498
Add charges to
operations not
requiring a current
cash payment
Amortization 1,152,334 813,419 2,873,643 1,205,123
Future income taxes 53,000 51,000 183,000 77,000
Deferred foreign
exchange loss (350,703) (431,690) (467,451) (639,013)
Loss (gain) on sale
of property, plant
and equipment - - (10,082) 490
---------------------------------------------------------------------
7,422,188 5,916,221 18,850,880 7,568,098
---------------------------------------------------------------------
Net change in non-cash
working capital
balances related to
operations
Accounts
receivable (1,164,955) (773,702)(11,809,514) (2,871,667)
Inventory 529,215 1,705,830 (1,314,070) 1,045,913
Prepaid expenses
and other assets 103,879 71,067 484,542 (37,247)
Accounts payable
and accrued
liabilities 1,167,374 1,050,539 1,779,059 (465,699)
Long-term incentive
plan 394,837 - 421,029 -
Income taxes payable 15,000 (1,406,985) 395,420 (1,407,175)
Customer deposits 184,880 211,353 (2,792,954) 203,379
---------------------------------------------------------------------
1,230,230 858,102 (12,836,488) (3,532,496)
---------------------------------------------------------------------
Cash provided by
operating
activities 8,652,418 6,774,323 6,014,392 4,035,602
---------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of
property, plant and
equipment (73,640) (164,898) (877,210) (434,248)
Acquisition of assets
of the Edwards Group
of Companies 2,672 - (21,685,743) -
Cash held in trust
related to acquisition
of the Edwards Group
of Companies 406,133 - - -
Transfers to restricted
cash for settlement
of AgGrowth acquisition
costs - (85,370) - (127,187)
Proceeds from sale of
property, plant and
equipment - - 10,500 24,767
Acquisition of Ag Growth
Industries Inc. - - - (32,133,771)
Pre-existing Fund
structure tax credits
received - - 240,000 -
---------------------------------------------------------------------
Cash used in investing
activities 335,165 (250,268)(22,312,453)(32,670,439)
---------------------------------------------------------------------

FINANCING ACTIVITIES
Increase (decrease)
in bank indebtedness (4,725,236) (3,323,363) 1,000,222 (1,089,655)
Repayment of long-term
debt (8,374) (9,505) (25,123)(32,891,562)
Distributions paid (4,088,921) (3,191,187)(12,020,913) (3,191,187)
Issuance of units,
net of expenses (31,052) - 20,475,946 -
Issuance of long-term
debt - - - 20,082,470
Increase in deferred
financing costs on
long-term debt (134,000) - (134,000) (661,011)
Initial public offering
of fund units, net of
expenses - - - 62,694,248
Redemption of Class D
preferred shares of
Ag Growth - - - (16,000,000)
Payment of dividend on
Class D preferred
shares of Ag Growth - - - (308,466)
---------------------------------------------------------------------
Cash provided by (used
in) financing
activities (8,987,583) (6,524,055) 9,296,132 28,634,837
---------------------------------------------------------------------

Net decrease in cash
and cash equivalents
during the period - - (7,001,929) -
Cash and cash
equivalents, beginning
of period - - 7,001,929 -
---------------------------------------------------------------------
Cash and cash
equivalents,
end of period - - - -
---------------------------------------------------------------------
---------------------------------------------------------------------

Supplemental cash
flow information
Interest paid 301,170 322,403 748,864 427,908
Income taxes paid
(recovered) - 1,417,485 (339,970) 1,422,675
---------------------------------------------------------------------
---------------------------------------------------------------------

(1) (includes the results of Ag Growth's operations for the 136-day
period from May 18, 2004 to September 30, 2004).

See accompanying notes


Ag Growth Income Fund

NOTES TO UNAUDITED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS

September 30, 2005


1. ORGANIZATION AND NATURE OF BUSINESS

Ag Growth Income Fund (the "Fund") is an unincorporated, open-ended, limited purpose trust established under the laws of the Province of Ontario by a Declaration of Trust made as at March 24, 2004. The Fund and its wholly-owned subsidiaries conduct business in the grain handling, storage, and conditioning market. Each unitholder participates pro rata in distributions of net earnings and, in the event of termination, participates pro rata in the net assets remaining after satisfaction of all liabilities. Income tax obligations related to the distribution of net earnings by the Fund are the obligations of the unitholders.

2. BASIS OF PRESENTATION

The Fund prepares its consolidated financial statements in accordance with Canadian generally accepted accounting principles. The unaudited interim consolidated financial statements should be read in conjunction with the Fund's annual consolidated financial statements as at and for the 283-day period ended December 31, 2004.

Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature to present fairly the consolidated financial position of the Fund as at September 30, 2005.

These unaudited interim consolidated financial statements reflect the results of operations of the Fund for the three-month and nine-month periods ended September 30, 2005. Although a Declaration of Trust for the Fund was made on March 24, 2004, the Fund was inactive until its acquisition of Ag Growth Industries Inc. ("Ag Growth") on May 18, 2004. As a result, comparative financial information, for the three-month and 191-day periods ended September 30, 2004, provided on the statements of earnings, unitholders' equity and cash flows only include the results of Ag Growth's operations for the period May 18, 2004 to September 30, 2004.

3. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies are summarized below:

Principles of consolidation

The consolidated financial statements include the accounts of the Fund and its wholly-owned subsidiaries Ag Growth Operating Trust, AGX Holdings Inc., AGX Holdings Limited Partnership ("AGHLP"), Ag Growth Industries Limited Partnership, Ag Growth, Westfield Distributing Ltd. and Westfield Distributing (North Dakota) Inc. All material intercompany balances and transactions have been eliminated.

Cash and cash equivalents

Cash and cash equivalents consist of cash and highly liquid money market funds with maturities of less than three months.

Inventory

Inventory is comprised of raw materials and finished goods. Raw materials are recorded at the lower of cost and replacement cost. Finished goods are recorded at the lower of cost, which includes direct costs and an allocation of direct manufacturing overhead, and net realizable value. Cost is determined on a first-in, first-out basis.

Property, plant and equipment

Property, plant and equipment are recorded at cost, net of amortization. Amortization is provided over the estimated useful lives of the assets using the following rates and methods:



Buildings 4% - 5% declining balance
Leasehold improvements 20% straight line
Furniture and fixtures 20% declining balance
Automotive equipment 20% - 30% declining balance
Computer equipment 30% declining balance
Manufacturing equipment 20% - 30% declining balance


Goodwill

Goodwill represents the amounts paid to acquire Ag Growth and the Edwards Group in excess of the estimated fair value of the net identifiable assets acquired. Goodwill is not subject to amortization. Goodwill is tested for impairment at least annually by comparing the estimated fair value of its reporting unit to its carrying value. The carrying value of goodwill is written down to estimated fair value if the carrying value of the reporting unit's goodwill exceeds its estimated fair value.

Intangible assets

Intangible assets are comprised of Ag Growth and the Edwards Group's brand names, which are considered to have an indefinite life, Ag Growth and the Edwards Group's distribution networks, which are being amortized over 25 years on a straight-line basis, and a patent acquired from the Edwards Group which is being amortized over a one year period. Indefinite life intangible assets are tested for impairment at least annually by comparing their estimated fair values to their carrying values. The carrying value of an indefinite life intangible asset is written down to its estimated fair value if its carrying value exceeds its estimated fair value.

Impairment of property, plant and equipment and finite life intangible assets

Impairment of property, plant and equipment and finite life intangible assets is recognized when an event or change in circumstances causes the asset's carrying value to exceed the total undiscounted cash flows expected from its use and eventual disposition. The impairment loss is calculated by deducting the estimated fair value of the asset from its carrying value.

Deferred financing costs

Deferred financing costs are amortized on a straight-line basis over the two-year term of the related debt financing.

Income taxes

The Fund is a mutual fund trust for income tax purposes and therefore is not subject to tax on income distributed to unitholders. Taxes payable on income of the Fund distributed to unitholders are the responsibility of individual unitholders.

The Fund's corporate subsidiaries use the liability method of accounting for income taxes. Under this method, assets or liabilities are recognized for the future income tax consequences of temporary differences between the carrying amounts of assets and liabilities and their tax bases. Future income taxes are measured using the substantively enacted tax rates expected to be in effect in the years in which those temporary differences are expected to reverse. Future income tax benefits are recognized when realization is considered more likely than not.

Foreign currency translation

The Fund follows the temporal method of accounting for the translation of its integrated foreign subsidiary and foreign currency transactions. Monetary assets and liabilities denominated in foreign currencies are translated to Canadian dollars at the exchange rates in effect at the consolidated balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated to Canadian dollars at their historical exchange rates. Revenue and expenses denominated in foreign currencies are translated to Canadian dollars at the monthly rate of exchange. Gains and losses on translation are reflected in net earnings for the period.

Revenue recognition

The Fund recognizes revenue when the risks and rewards of ownership in the products have transferred to its customer and collection is reasonably assured. Subject to the terms of the contract, these criteria are generally met when the products are shipped, free on board shipping point. For products on consignment, revenue is recognized upon the sale of the product by the consignee. Provision is made at the time revenue is recognized for estimated product returns and warranties.

Research and development

Research expenses are charged to earnings in the period they are incurred. Development expenses are charged to earnings unless the Fund believes the costs meet generally accepted criteria for deferral and amortization.

Leases

Leases are classified as either capital or operating. Leases which transfer substantially all the benefits and risks of ownership of the property to the Fund are accounted for as capital leases. Capital lease obligations reflect the present value of future lease payments, discounted at the appropriate interest rate. All other leases are accounted for as operating leases wherein rental payments are expensed as incurred.

Net earnings per unit

Net earnings per unit is based on the consolidated net earnings for the period divided by the weighted average number of units outstanding during the period. Diluted earnings per unit is computed in accordance with the treasury stock method and based on the weighted average number of units and dilutive unit equivalents.

Long-term incentive plan

Under the terms of the long-term incentive plan ("LTIP"), the Fund establishes an amount to be allocated to eligible participants based on 10% to 20% of cash distributions in excess of an established threshold. The cost is accrued as an expense in the period when it is determined an amount payable under the LTIP appears likely.

Derivative financial instruments

Derivative financial instruments are utilized by the Fund in the management of its foreign currency and interest rate exposures. The Fund's policy is not to utilize derivative financial instruments for trading or speculative purposes.

The Fund formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking foreign exchange contracts to specific anticipated sales transactions on the consolidated balance sheet. The Fund also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The Fund purchases foreign exchange contracts to hedge anticipated sales to customers in the United States and the collection of the related accounts receivable. Foreign exchange translation gains and losses on foreign currency denominated derivative financial instruments used to hedge anticipated U.S. dollar denominated sales are recognized as an adjustment of the revenues when the sale is recorded. For foreign exchange contracts used to hedge anticipated U.S. dollar denominated sales and the collection of the related accounts receivable, the portion of the forward premium or discount on the contract relating to the period prior to consummation of the sale is also recognized as an adjustment of the revenues when the sale is recorded; and the portion of the premium or discount that relates to the resulting account receivable is amortized over the expected period to collection of the accounts receivable.

Realized and unrealized gains or losses associated with derivative instruments, which have been terminated or cease to be effective prior to maturity, are deferred under other current, or non-current, assets or liabilities on the consolidated balance sheet and recognized in earnings in the period in which the underlying hedged transaction is recognized. In the event a designated hedged item is sold, extinguished or matures prior to the termination of the related derivative instrument, any realized or unrealized gain or loss on such derivative instrument is recognized in earnings.

The Fund uses foreign currency swap agreements to manage its cash positions. The Fund's foreign currency swap agreements do not qualify for hedge accounting. The Fund also enters into interest rate swaps in order to reduce the impact of fluctuating interest rates on its long-term debt. These swap agreements require the periodic exchange of payments without the exchange of the notional principal amount on which the payments are based. During the three-month period ended September 30, 2005, the terms of the interest rate swap were changed and it no longer qualifies for hedge accounting. These swaps are measured at their fair value and included in accounts payable and accrued liabilities on the consolidated balance sheet. Changes in the fair value of the foreign currency swaps and interest rate swaps are recognized in earnings and are included in loss (gain) on foreign exchange and interest expense, respectively, in the corresponding period.

Use of estimates

The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the consolidated balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

4. SEASONALITY OF BUSINESS

Interim period revenues and earnings historically reflect some seasonality. The third quarter is typically the strongest primarily due to high in-season demand at the farm level. The Fund's collections of accounts receivable are weighted towards the third and fourth quarters. This collection pattern, combined with seasonally high sales in the third quarter, result in accounts receivable levels increasing throughout the year and normally peaking in the third quarter. As a result of these working capital movements, historically, the Fund's use of its bank revolver is typically highest in the first and second quarters. The revolver balance begins to decline in the third quarter as collections of accounts receivable increase. The Fund would expect to repay its revolver in the fourth quarter of each year.

5. ISSUANCE OF FUND UNITS AND ACQUISITION

Effective April 8, 2005, the Fund acquired substantially all of the assets of The Edwards Group of Companies ("the Edwards Group"), a leading manufacturer of agricultural aeration equipment, for cash consideration in the amount of $21,685,743. In conjunction with the acquisition, the Fund completed a private placement of 1,595,000 Trust Units priced at $13.50 per unit for gross proceeds of $21,532,500. The Fund has recorded expenses in connection with the offering, including commissions payable to the underwriters, of $1,056,554.

The acquisition has been accounted for by the purchase method with the results of the Edwards Group's operations included in the Fund's earnings from the date of acquisition (the unaudited interim consolidated statement of earnings includes the results of the Edward Group's operations for the 176-day period from April 8, 2005 to September 30, 2005). These unaudited interim consolidated financial statements reflect the assets and liabilities of the Edwards Group at assigned estimated fair values as follows:


$
---------------------------------------------------------------------
Net assets acquired
Accounts receivable 1,348,830
Inventory 3,672,603
Prepaid expenses and other assets 174,246
Property, plant and equipment 6,992,000
Intangible assets
Brand name 4,363,000
Distribution network 2,839,000
Patent 250,000
Goodwill 3,406,168
Accounts payable and accrued liabilities (1,360,104)
---------------------------------------------------------------------
21,685,743
---------------------------------------------------------------------
---------------------------------------------------------------------


6. INVENTORY



September 30, December 31,
2005 2004
$ $
---------------------------------------------------------------------
Raw materials 6,701,176 4,080,743
Finished goods 3,759,074 11,392,834
---------------------------------------------------------------------
20,460,250 15,473,577
---------------------------------------------------------------------
---------------------------------------------------------------------


7. PROPERTY, PLANT AND EQUIPMENT


September 30, 2005
--------------------------------------
Accumulated Net book
Cost amortization value
$ $ $
---------------------------------------------------------------------

Land 861,315 - 861,315
Buildings 5,098,232 228,678 4,869,554
Leasehold improvements 7,000 6,177 823
Furniture and fixtures 112,050 20,280 91,770
Automotive equipment 1,489,037 434,791 1,054,246
Computer equipment 417,444 124,199 293,245
Manufacturing equipment 6,005,750 986,607 5,019,143
---------------------------------------------------------------------
13,990,828 1,800,732 12,190,096
---------------------------------------------------------------------
---------------------------------------------------------------------


December 31, 2004
--------------------------------------
Accumulated Net book
Cost amortization value
$ $ $
---------------------------------------------------------------------

Land 611,315 - 611,315
Buildings 2,940,739 80,893 2,859,846
Leasehold improvements 10,486 2,942 7,544
Furniture and fixtures 83,543 10,831 72,712
Automotive equipment 1,197,541 183,447 1,014,094
Computer equipment 285,842 60,667 225,175
Manufacturing equipment 998,442 165,954 832,488
---------------------------------------------------------------------
6,127,908 504,734 5,623,174
---------------------------------------------------------------------
---------------------------------------------------------------------


8. INTANGIBLE ASSETS

September 30, 2005
--------------------------------------
Accumulated Net book
Cost amortization value
$ $ $
---------------------------------------------------------------------

Distribution network 37,839,000 1,962,122 35,876,878
Brand name 23,363,000 - 23,363,000
Patent 250,000 125,000 125,000
---------------------------------------------------------------------
61,452,000 2,087,122 59,364,878
---------------------------------------------------------------------
---------------------------------------------------------------------


December 31, 2004
--------------------------------------
Accumulated Net book
Cost amortization value
$ $ $
---------------------------------------------------------------------

Distribution network 35,000,000 855,342 34,144,658
Brand name 19,000,000 - 19,000,000
Patent - - -
---------------------------------------------------------------------
54,000,000 855,342 53,144,658
---------------------------------------------------------------------
---------------------------------------------------------------------


9. DEFERRED FINANCING COSTS

September 30, 2005
--------------------------------------
Accumulated Net book
Cost amortization value
$ $ $
---------------------------------------------------------------------
795,011 546,445 248,566
---------------------------------------------------------------------
---------------------------------------------------------------------

December 31, 2004
--------------------------------------
Accumulated Net book
Cost amortization value
$ $ $
---------------------------------------------------------------------
661,011 206,452 454,559
---------------------------------------------------------------------
---------------------------------------------------------------------


10. BANK INDEBTEDNESS

The Fund has an operating facility of $15 million, increasing to $18 million for the period May 31 to September 30. The facility bears interest at a rate of prime to prime plus 1.0% per annum based on performance calculations. The effective interest rate during the three-month and nine-month periods ended September 30, 2005 was 4.50% (three-month and 191-day periods ended September 30, 2004 - 4.3%). At September 30, 2005, $1,687,039 (December 31, 2004 - $Nil) was outstanding under this facility. Collateral for the operating facility includes a general security agreement over all assets and first position collateral mortgages on land and buildings.



11. LONG-TERM DEBT

September 30, December 31,
2005 2004
$ $
---------------------------------------------------------------------
Term loan interest payable monthly at prime
to prime plus 1% per annum based on
performance calculations. As described in
note 16, the Fund has entered into a swap
contract that effectively fixes the Fund's
interest rate at 3.68%, plus 1.0%, 1.5%, or
2.0% per annum based on performance
calculations. The effective interest rate
during the three-month and nine-month
periods ended September 30, 2005 would have
been 4.5% (three-month and 191-day periods
ended September 30, 2004 - 4.3%) and after
consideration of the effect of the interest
rate swap was 4.54% and 4.40% for the
three-month and nine-month periods ended
September 30, 2005 (three-month and 191-day
periods ended September 30, 2004 - 4.32%) 20,000,000 20,000,000
GMAC loans, 0% maturing in 2007 and 2008,
with monthly payments of $2,791. Vehicles
financed are pledged as collateral 76,965 102,088
---------------------------------------------------------------------
20,076,965 20,102,088
Less current portion 33,495 33,495
---------------------------------------------------------------------
20,043,470 20,068,593
---------------------------------------------------------------------
---------------------------------------------------------------------


Under the agreement for the term loan, the Fund is required to maintain certain financial covenants. As at September 30, 2005 and December 31, 2004, the Fund was in compliance with the applicable financial covenant terms. Collateral for the term loan and operating facility (note 10) includes a general security agreement over all assets and first position collateral mortgages on land and buildings.

The term loan matures May 2006 and is extendible annually for an additional one-year term at the lender's option. Under the terms of the credit facility agreement, if the bank elects to not extend the operating loan and term loan facilities beyond the current May 31, 2006 maturity date, all amounts outstanding under the facilities become repayable in four equal quarterly instalments of principal, commencing on the last day of the third month following the first anniversary of the expiry date.



Principal repayments due within the next four fiscal years, if the
term loan is not renewed and is repayable commencing August 31, 2007,
are as follows:

$
---------------------------------------------------------------------

2005 (October 1 - December 31) 10,873
2006 33,495
2007 10,027,008
2008 10,005,589
---------------------------------------------------------------------
20,076,965
---------------------------------------------------------------------
---------------------------------------------------------------------

Collateral for the term loan and operating facility (note 10)
includes a general security agreement over all assets and first
position collateral mortgages on land and buildings.

12. UNITHOLDERS' CAPITAL

Unitholders' capital is comprised of the following:

Class B Class C
Fund Exchangeable Exchangeable Total
Trust units of units of Unitholders'
units AGHLP AGHLP capital
$ $ $ $
---------------------------------------------------------------------

Balance,
December
31, 2004 68,883,378 1,810,870 19,260,000 89,954,248
Issuance of
units, net of
costs 20,475,946 - - 20,475,946
Exchange of
units 111,090 (111,090) - -
---------------------------------------------------------------------
Balance,
September 30,
2005 89,470,414 1,699,780 19,260,000 110,430,194
---------------------------------------------------------------------
---------------------------------------------------------------------


Class B Class C
Fund Exchangeable Exchangeable
Trust units of units of
units AGHLP AGHLP
# # #
---------------------------------------------------------------------

Balance, December 31, 2004 7,522,913 181,087 1,926,000
Issuance of units (note 5) 1,595,000 - -
Exchange of units 11,109 (11,109) -
---------------------------------------------------------------------
Balance, September 30, 2005 9,129,022 169,978 1,926,000
---------------------------------------------------------------------
---------------------------------------------------------------------


The Fund Declaration of Trust provides that an unlimited number of trust units may be issued. Each trust unit represents an equal undivided beneficial interest in the Fund and any distributions from the Fund. Each trust unit is transferable, entitles the holder thereof to participate equally in distributions of the Fund, is not subject to future calls or assessments, entitles the holder to rights of redemption and entitles the holder to one vote at all meetings of unitholders.

The Fund Declaration of Trust also provides for the issuance of an unlimited number of Special Voting Units. The Special Voting Units are only issuable for the purpose of providing voting rights to the holders of Exchangeable LP Units or Subordinated LP Units. Each unit is entitled to one vote on matters related to the Fund. The Special Voting Units are not entitled to any interest or share in the Fund or in any distribution from the Fund. There is no value attached to these units. At September 30, 2005, there were 2,095,978 Special Voting Units outstanding (December 31, 2004 - 2,107,087 units), which were attached to the outstanding Class B Exchangeable LP Units of AGHLP and the Class C Exchangeable Subordinated LP Units of AGHLP.

The Class B Exchangeable LP Units of AGHLP are exchangeable for trust units of the Fund at the option of the holder on a one-for-one basis at any time. During the nine-month period ended September 30, 2005, 11,109 Class B Exchangeable LP Units of AGHLP, with a value of $111,090, were exchanged into 11,109 Units of the Fund.

The Class C Subordinated Exchangeable LP Units of AGHLP are exchangeable for Class B Exchangeable LP Units of AGHLP on a one-for-one basis at the option of the holder after December 31, 2009 and by AGHLP on the subordination end date which can be no earlier than June 30, 2006, and is determined based on certain earnings and cash distribution thresholds of the Fund.

13. INCOME TAXES

Income tax obligations relating to distributions from the Fund are the obligations of the unitholders and accordingly, no provision for income taxes on the income of the Fund has been made. A provision for income taxes is recognized for the corporate subsidiaries of the Fund, which are subject to tax, including large corporation tax.

The provision for income taxes varies from the amount that would be expected if computed by applying the Canadian federal and provincial statutory income tax rates to the earnings before income taxes as shown in the following table:



Three-month Three-month Nine-month 191-day
period period period period
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
---------------------------------------------------------------------
$ % $ % $ % $ %
---------------------------------------------------------------------
Earnings before
income taxes 6,635,557 5,544,992 16,499,770 7,016,998
Temporary
differences
and non-tax
deductible
expenses 189,104 323,954 159,913 496,994
Earnings
subject to
tax in the
hands of
unitholders/
limited
partners (6,685,353) (5,734,944) (16,183,525) (7,309,987)
---------------------------------------------------------------------
Income of
subsidiary
companies
subject
to tax 139,308 134,002 476,158 204,005
---------------------------------------------------------------------
---------------------------------------------------------------------

Provision for
income taxes 53,000 38 51,000 38 183,000 38 77,000 38
Large corporation
tax 15,000 11 10,500 8 45,000 9 15,500 7
---------------------------------------------------------------------
Income tax
provision 68,000 49 61,500 46 228,000 47 92,500 45
---------------------------------------------------------------------
---------------------------------------------------------------------


During the nine-month period ended September 30, 2005, the Fund recorded $240,000 of tax credits and $85,000 of benefits related to non-capital loss carryforwards which pre-existed the Fund structure and have been credited to goodwill.

Significant components of the Fund's future tax assets are shown below:



September 30, December 31,
2005 2004
$ $
---------------------------------------------------------------------

Future tax assets
Financing costs 182,000 377,000
Non-capital losses 283,000 186,000
---------------------------------------------------------------------
465,000 563,000
---------------------------------------------------------------------
---------------------------------------------------------------------

The non-capital losses expire as follows:

$
---------------------------------------------------------------------
2014 186,000
2015 97,000


14. DISTRIBUTIONS TO UNITHOLDERS

For the three-month and nine-month periods ended September 30, 2005, the Fund made distributions of $4,265,500 ($0.3800 per unit) and $11,172,622 ($1.0483 per unit). For the three-month and the 191-day periods ended September 30, 2004, the Fund made distributions of $3,128,787 ($0.3249 per unit) and $4,651,228 ($0.4830 per unit) respectively. In accordance with the terms of the Fund's Declaration of Trust, taxable income of the Fund in a given fiscal year not yet having been distributed to unitholders will become due and payable to the unitholders of record as at December 31. Based on the financial results and the distributions declared for the nine-month period ended September 30, 2005, the Fund anticipates a special distribution(s) being declared.

15. LONG TERM INCENTIVE PLAN

Key senior management of the Fund are eligible to participate in the Fund's LTIP. The purpose of the LTIP is to provide eligible participants with compensation opportunities that encourage ownership of units of the Fund, enhance the Fund's ability to attract, retain and motivate key personnel and reward key senior management for significant performance and associated growth in distributions. Pursuant to the LTIP, the Fund establishes the amount to be allocated to eligible participants based upon the amount by which the Fund's distributions exceed cash distribution thresholds (as defined in the LTIP plan documents). The LTIP is administered by the Corporate Governance and Compensation Committee.

The Board of Trustees of the Fund or the Corporate Governance and Compensation Committee has the power to, among other things, determine those individuals who participate in the LTIP and determine the level of participation of each participant.

The Fund has a recorded liability with respect to the fiscal 2005 LTIP at September 30, 2005 of $686,817 (December 31, 2004 - $265,788).

16. FINANCIAL INSTRUMENTS

The Fund has the following financial instruments: cash and cash equivalents, accounts receivable, bank indebtedness, accounts payable and accrued liabilities, customer deposits, distributions payable, long-term incentive plan, long-term debt, an interest rate swap arrangement, foreign exchange contracts and foreign currency swap agreements. It is management's opinion that the Fund is not exposed to significant credit risks arising from these financial instruments.

Currency exposures

Risk from foreign exchange arises as a result of variations in exchange rates between the Canadian and the U.S. dollar. The Fund has entered into foreign exchange contracts to hedge its foreign currency exposure on anticipated U.S. dollar sales transactions and the collection of the related accounts receivable.

At September 30, 2005, the Fund had outstanding forward foreign exchange contracts as follows:



Settlement dates Face value Average rate
$U.S. $Cdn
---------------------------------------------------------------------
October 2005 to December 2005 11,100,000 1.3230
March 2006 to December 2006 18,500,000 1.3227
March 2007 to December 2007 4,625,000 1.2357
---------------------------------------------------------------------
---------------------------------------------------------------------


In addition, the Fund entered into currency options consisting of a series of call and put options at rates of $1.1363 and $1.2750 respectively. The contracts mature in 2007 and have a total face value of U.S. $4,625,000.

At September 30, 2005, the Fund also had outstanding U.S. $2,900,000 of foreign currency swap agreements maturing in October 2005 at an average rate of Cdn. $1.1767.

Interest rate exposures

The Fund is subject to risks associated with fluctuating interest rates on its long-term debt. To manage this risk, the Fund has entered into an interest rate swap transaction with a Canadian chartered bank. The swap transaction expires on May 4, 2008. The swap transaction involves the exchange of the underlying floating interest rate of prime to prime plus 1.00% per annum for an effective fixed interest rate of 3.68% plus 1.00% to 2.00% per annum based on performance calculations. The notional amount of the swap transaction at September 30, 2005 and December 31, 2004 was $20,000,000.

Fair value

At September 30, 2005, the carrying value of the Fund's financial instruments approximates their fair value with the exception of derivative financial instruments. The unrealized gain on foreign exchange contracts was $5,297,126 at September 30, 2005. Upon maturity of the foreign exchange contracts, any gain/loss would be recognized in sales and/or realized foreign exchange gain/loss in the consolidated statement of earnings.

17. SEGMENTED DISCLOSURE

The Fund operates in one business segment related to the manufacturing and distributing of portable grain handling and aeration equipment. Geographic information about the Fund's revenues is based on the product shipment destination. Assets are based on their physical location as at the period end:



Revenues
--------------------------------------------------------
Three-month Three-month Nine-month 191-day
period ended period ended period ended period ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
$ $ $ $
---------------------------------------------------------------------

Canada 7,418,355 6,005,686 19,895,045 8,411,980
United States 18,181,660 14,529,971 44,568,780 19,461,828
International 1,155,781 1,244,936 2,669,395 1,762,305
---------------------------------------------------------------------
26,755,797 21,780,593 67,133,220 29,636,113
---------------------------------------------------------------------
---------------------------------------------------------------------

Property, plant and
equipment, goodwill
and intangible assets at
----------------------------
September 30, December 31,
2005 2004
$ $
---------------------------------------------------------------------
Canada 107,291,531 91,420,726
United States 233,502 235,997
International - -
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107,525,033 91,656,723
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18. COMMITMENTS

The Fund has entered into various operating leases for office and
manufacturing equipment, warehouse facilities and vehicles. Minimum
annual lease payments required in aggregate are as follows:

$
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2005 (October 1 to December 31) 125,296
2006 427,937
2007 373,217
2008 255,604
2009 and forward 218,101
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1,400,155
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19. SUBSEQUENT EVENT

A special distribution of $0.12 per unit was declared by the Fund subsequent to September 30, 2005, payable on December 30, 2005 to holders of record of units on November 30, 2005.

20. COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current period's presentation.

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